Q2 2023 – Melbourne Retail Market
July 23rd 2023 | , Urban Property Australia
- Total transactions in the Melbourne retail property market in the first half of 2023 totalled more than $800 million, having been boosted by a number of major sales, compared with $570 million in the first half of last year;
- Retail trade in Victoria continues to outperform the national average with annual growth of 10.1% recorded, almost double the 10-year trade average;
- Online retail trade in Australia continues to gradually take a larger share of overall spending, making up 10% of total retail sales with $45 billion spent online over the past 12 months.
Retail Market Summary
Total transactions in the Melbourne retail property market in the first half of 2023 totalled more than $800 million, having been boosted by a number of major sales, compared with $570 million in the first half of last year. Impacted by rising interest rates and higher borrowing costs, yields have softened across retail assets in the past 12 months. Online retail trade in Australia continues to take a larger share of overall spending accounting for 11% of total retail sales with consumers spending $45 billion online over the past year.
Sales Volume / Yields
Urban Property Australia research has revealed that total transactions in the Melbourne retail property market in the first half of 2023 totalled more than $800 million, having been boosted by a number of major sales, compared with $570 million in the first half of 2022. Impacted by rising interest rates and higher borrowing costs, yields have softened across assets in the 12 months to June 2023. Urban Property Australia expects yields of retail assets will expand further in 2023 in line with increased borrowing costs.
Demand
Retail trade in Victoria continues to outperform the national average, over the year to May 2023, annual retail trade in Victoria grew by 10.1%, almost double the 10-year trade average of 5.1%. In comparison, Australian annual retail trade grew by 9.9% over the year to May 2023. Victoria has now outperformed the national average since September 2021.
Most discretionary spending industries experienced strong rises once again as consumer cautiousness lessened, leading to an increase in mobility and improved business conditions with clothing and footwear sales now 27% higher than levels last year whereas retail trade of household goods increased by 2.7%.
Online retail trade in Australia continues to gradually take a larger share of overall spending. According to the ABS, as at May 2023, online sales made up 11% of total retail sales with Australian online sales with Australian consumers spending approximately $45 billion online over the past 12 months.
Retail Strips
Total vacancy of Melbourne’s prime retail strips has fallen from its all-time highs with around 12% of all shops vacant. The vacancy levels of Fitzroy Street, St Kilda is the highest at 28% with elevated vacancy rates at Chapel Street, South Yarra (12%), Glenferrie Road, Malvern (15%) and Lygon Street, Carlton (13%), albeit there is some gradual improvement in the latter.
The food and beverage sector increased its presence across the strips, growing in the majority of the precincts however a number of fashion retailers have vacated the prominent strips, impacted by store rationalisation and the growing influence of e-commerce.
With many strips having been re-discovered by locals now working from home, some retailers have successfully adjusted to the changing consumer trends. The elevated vacancy levels and rationalisation of some retailers has resulted in rental levels easing with some landlords also offering flexible lease terms and incentives to attract new occupiers.
The retail sector has improved at a remarkable pace and well beyond any forecasts. Now that more normalised spending patterns have emerged and if the economic recovery continues to gather pace, looking forward, Urban Property Australia expect to see a stabilisation of service-based consumption and a shift towards goods-based consumption moving forward which will benefit the retail strips markets.
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